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Jun

2024

Bull vs Bear Market: What’s the Difference?

By Michael Flannelly | invest, Investing, Terminology | No Comments

In the financial world, you’ll often hear the terms “bull market” and “bear market” in reference to market conditions, and these terms refer to extended periods of ups and downs in the financial markets. Because market conditions directly affect investors’ portfolios, it’s important to understand their differences.

As such, knowing the basics of bull and bear markets, and potentially maintaining or adjusting your investment strategy accordingly, may help you make wiser investing decisions, or at least provide some mental clarity.

What Is a Bull Market?

A bull market is a period of time in the financial markets where asset prices are rising, and optimism is high. A bull market is seen as a good thing for most investors because stock prices are on the upswing and the economy is booming. In other words, the market is charging ahead, and portfolios are rising in value. The designation is a bit vague, as there’s no specific amount of time or level of increase that defines a bull market.

The term “bull market” has an interesting history, and was actually coined in response to the development of the term “bear market” (more on that in a minute). The short of it is that “bears” became associated with speculation. In the 1700s, “bull” was used to describe someone making a speculative investment hoping that prices would rise, and thus, itself became the mascot for upward-trending markets.

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What Is a Bear Market?

Investors and market watchers generally define a bear market as a drop of 20% or more from market highs. When investors refer to a bear market, it usually means that multiple broad market indexes, such as the Standard & Poors 500 Index (S&P 500) or Dow Jones Industrial Average (DJIA), fell by 20% or more over at least two months.

As noted, the term “bear” has a long history. It can be traced back to an old proverb, warning that it isn’t wise to “sell the bear’s skin before one has caught the bear.” “Bear’s skin” became simply “bear” over the years, and the term started to be used to describe speculators in the markets. Those speculators were often betting or hoping that prices would decline so that they could generate returns, and from there, “bears” became associated with downward-trending markets.

Bull vs Bear: Main Differences

The most stark and obvious difference between bull and bear markets is that one is associated with a downward-trending market, and the other, with an upward-trending market. But there are other differences as well.

For instance, bull markets tend to last longer than bear markets – although there’s no guarantee that any bull market will last longer than any particular bear market. The average bull market, for instance, lasts between six and seven years, while the average bear market lasts less than one-and-a-half years.

Typical gains and losses are lopsided between the two, as well. The average gain over the course of a bull market is almost 340%, while the average cumulative loss during bear markets is less than 40%.

Bull vs Bear Market: Key Differences
Bull Market	Bear Market
Upward-trending market	Downward, or declining market
Have an average duration of 6.6 years	Have an average duration of 1.3 years
Average cumulative gains amount to ~340%	Average cumulative losses amount to 38%

How Is Investing Different During a Bull Market vs a Bear Market?

Depending on the individual investor, investing can be different during different types of markets. For some people, their investing habits may not change at all – but for others, their entire strategy may shift. A lot of it has to do with your personal risk tolerance and whether you’re letting your emotions get the best of you.

You may want to think of it this way: Just like encountering a grizzly on a hike, a bear market can be terrifying. Falling stock prices likely mean that the value of your retirement account or other investment portfolios are plummeting.

Unrealized losses during a bear market can be psychologically brutal, and if your investments don’t have time to recover, they can seriously affect your life.

Assuming, that is, that those unrealized losses become realized – if an investor does nothing during a bear market, allowing the market to recover (which, historically, it always has), then they’ve effectively lost nothing.

That can be important to keep in mind because markets are cyclical, meaning that bear markets are a fact of life; they tend to occur every three to four years. But what makes them nerve-wracking is that it’s difficult to see them coming. Some signs that a bear market may be looming include a slowing economy, increasing unemployment, declining profits for corporations, and decreasing consumer confidence, among other things.

Conversely, many investors may find it psychologically easier to invest during a bull market, when assets are appreciating (generally), and they can see an immediate unrealized return in their portfolio. Again, each investor will react differently to different market conditions, but the psychological weight of prevailing markets can be heavy on many investors.

Investing During a Bull Market

As noted, investors choose to adopt different investment strategies depending on whether we’re experiencing a bull or bear market.

During a bull market, some might suggest holding off on the urge to sell stocks even after you’ve had gains, since you could miss out on even higher prices if the bull market charges forward. However, no one knows when a peak will arrive, so this buy-and-hold strategy could lead to investors, who sell later, missing out on potential gains.

It may be a good idea to try and keep your confidence in check during a bull market, too. Because investors have seen their holdings gaining value, they might think they’re better at picking stocks than they actually are, and could feel tempted to make riskier moves.

Another common mistake is believing that the gains will continue in perpetuity; in reality, it’s often hard to predict a downswing, and stock market timing is challenging for even professional investors.

Investing During a Bear Market

A great way to prepare for a bear market is to try and remember that the market will, at some point, see a downturn. And, accordingly, to try and be prepared for it.

One way to do so could be to make sure your assets aren’t allocated in a way that’s riskier than you’re comfortable with — for example, by being overly invested in stocks in one company, industry, or region — when times are good. In other words, make sure your portfolio contains some degree of diversification.

Buying stock during a bear market can be advantageous since investors might be getting a better deal on stocks that could rise in value once the market recovers, which is also known as buying the dip. However, there can be obvious risks associated with predicting when certain stocks will hit bottom and buying them with the expectation of future gains.

No one knows what the future holds, so there’s always a chance the price will keep plummeting. Another tactic investors might be able to use is dollar-cost averaging — which is investing a fixed amount of money over time — so that chances of buying at high or low points are spread out over time.

Once the bear market arrives, investors make a common mistake: getting spooked and selling off all their stocks. But selling when prices are low means they could be likely to suffer losses and may miss the subsequent rebound.

In general, as long as investors are comfortable with their portfolio mix and are investing for the long haul, it may be a good idea to stick with your predetermined strategy, no matter what’s happening in the markets in the short-term. Again, it’s worth remembering that market cycles are normal, and the same dynamism responsible for downturns allows investors to experience gains at other times.

Examples of Bull and Bear Markets

As discussed, bear markets are fairly common. In fact, dating back to 1929, the S&P 500 has experienced a decline of 20% or more 27 times – and the good news for investors, as of late, is that more recent bear markets have tended to be shorter in duration, and fewer and further between.

The most recent bear market was during 2022, and lasted 282 days, with a market decline of more than 25%. The market has, since then, bounced back to reach record-highs. Before that, there was a bear market in February and March 2020, when the pandemic initially hit the U.S., which saw the markets fall more than 33% – but the bear market itself lasted only 33 days.

Going back even further, there was a relatively severe bear market in the early 1970s which lasted 630 days, and saw the market decline 48%. Again, that makes more recent downturns look fairly tame in comparison.

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The Takeaway

Bull and bear markets refer to either rising or declining markets, with bear markets notable as they represent declines of at least 20% in the market. Both bull and bear markets can have psychological effects on investors, and it’s important to understand what they are to try and adjust (or stick to) your strategy, accordingly.

If you’re investing for decades down the road, once you have an investment mix that is diversified and matches your comfort with risk, it’s often wisest to leave it alone regardless of what the market is doing. It may also be a good idea to speak with a financial professional for guidance.

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Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.

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May

2024

Checking Account Pros and Cons

By SoFi Editors | Budgeting & Goals, Family Finances, money | Comments Off

A checking account can be a convenient place to store your cash and manage daily transactions, but, like most financial products, it has its pros and cons. On the plus side: You can usually make as many transfers in and out of the account as you like (including by swiping, tapping, and waving your debit card to make purchases). Also, your funds are likely to be insured.

But, on the negative side, you probably won’t earn much or any interest for parking your money in a checking account, and you may be hit with an array of fees that nibble away at your funds.

Here, take a closer look at checking account pros and cons so you can determine how to get the right financial product to suit your needs.

What Is a Checking Account?

Simply put, a checking account is a safe place to stash funds and enable the flow of money in (what you earn and receive) and out (what you spend).

Whether held at a brick-and-mortar bank, an online financial institution, or a credit union, a checking account is often the hub of a person’s financial life. Your pay can be seamlessly direct deposited, if you like.

For your everyday spending, you might schedule automatic payments for your mortgage and utilities, write a check when paying for a doctor’s appointment, and tap your debit card when treating yourself to a wine-tasting with friends on the weekend.

Pros of Checking Accounts

Here’s a closer look at the pros and cons of a checking account, starting with the upsides.

Security

Yes, you could stuff your money under the proverbial mattress, but with a checking account, you have a secure spot for it, where it can’t get lost, taken, or damaged. If your bank is insured by the FDIC (Federal Deposit Insurance Corporation) or, in the case of a credit union, the NCUA (National Credit Union Administration), your account will typically be covered up to $250,000 per depositor.

In the very rare event of a bank failure, you would be protected from loss up to those limits. (Note: Some institutions offer even more than $250,000 in insurance.)

Easy Access to Cash

Checking accounts allow you to access your money quickly and easily, whether you need to pay for a meal or something unexpected, like a school donation. Setting up direct deposit allows your paychecks to be transferred directly into your checking or savings account, with some banks offering access to cash up to two days early. That’s significantly simpler than what past generations had to do, such as queuing up at the bank to deposit a paycheck at lunchtime.

You can then tap your funds by using your checking account’s debit card, writing checks, snagging some cash from the ATM, or making a transfer.

Pay Bills Conveniently

Having a checking account means you can get your bills taken care of without much effort. You might set up recurring payments to a car loan, for instance, or use a digital payment app to send money to your roommate, a friend, or your yoga teacher. You can also typically move funds quickly via wire transfer, which can be especially useful for international transactions, and other methods as well.

Debit Card for Purchases

When you open a checking account, you’re usually provided with a debit card that’s linked to the account. Similar to a credit card, you can typically use your debit card to pay in person or online for anything from this week’s groceries to a cool new pair of shades to a matcha latte.

Unlike a credit card, however, debit cards pull funds directly from your checking account. They usually only let you dip into funds you actually have on deposit, which can help you keep spending in check and stay on budget, not to mention avoid credit card debt.

Rewards

Some checking accounts come with rewards that can be a nice perk. For example, when you open an account, you might get a sign-up bonus. Who doesn’t like free money? Or your debit card may carry rewards, similar to those of a credit card, such as cash back.

Cons of Checking Accounts

Given that checking accounts are designed for customers’ everyday, short-term money needs, they have some limitations, as well. Here are a few potential downsides to consider.

Low or No Interest Earned

While your money is sitting in your checking account, it is probably earning very low, if any, interest. For instance, as of mid-April 2024, the average checking account interest rate was a meager 0.08% (that’s eight-hundredths of a percent). Translated into dollars and cents, that means that if you kept $5,000 in your checking account for a year, you would only earn $4 in simple interest.

That said, there are high-yield and premium checking accounts available that pay heftier interest rates. These may come with minimum deposit and balance requirements. Online-only banks frequently offer these accounts without those barriers, however, and with interest rates that are several times higher than the national average.

Potential Overdraft and Other Fees

Sooner or later, many people will try to transfer more money out of their checking account than they actually have on deposit. It could be a simple math error, or they might have forgotten about that on-the-fly payment they made to contribute to a friend’s baby shower gift.

Not having enough money in your checking account can lead to overdraft fees. The average charge currently stands at a steep $25 to $35. (Worth noting: There are signs of this decreasing due to government and consumer advocacy pressure.) Also, even if you have overdraft protection — meaning you have linked accounts so that money can be pulled from savings into checking to cover payments, if needed — you may still be charged a fee. However, it’s likely to be lower than an overdraft charge.

Also, check the fine print when signing up for a new checking account: There can be other fees, such as account maintenance and out-of-network ATM fees.

Security Risks

While banks are extremely safe overall, there is always a small possibility of a security risk (such as a hack), though these would typically be covered by the FDIC or NCUA, as mentioned above. Losing or having your debit card stolen and used without your authorization is another concern— and it can be a common one. A card thief could potentially gain access to the funds in your checking account. It’s vital to report the issue within two days of noticing the card is missing. Otherwise, you could be liable up to $500 or more depending on the circumstances.

When a Checking Account Makes Sense

Quite simply, checking accounts make sense for the vast majority of Americans. It typically serves as the hub of one’s daily financial life.

Some people, though, are unbanked, meaning they have not (or are not able) to access the usual banking services. If you are seeking a checking account and haven’t been able to secure one, you can try a few other options:

• It might be easier to get an account at a credit union, if you qualify for one based on where you live, your profession, or other factors.

• Your banking history may reveal some issues, such as multiple overdrafts, as tracked by ChexSystems (a kind of reporting agency for the banking industry). In this situation, you might qualify for a second-chance account. This kind of account may have higher fees and/or minimum balance requirements, but it can be a good way to show that you can handle an account responsibly. In some cases, a second-chance account can be a stepping stone to a standard checking account.

When Other Accounts May Be Better

There are some situations in which another kind of account could be better than a checking account. A few scenarios to consider:

• If you are hoping to park your money for a while and earn interest vs. spend it, a savings account can be a good bet. Some savings accounts have limits on how many transactions can occur per month (check the fine print). Whether or not that applies, you will likely earn a higher interest rate than you would with a checking account. For instance, the current average interest rate for a savings account is 0.46% vs. 0.08% for checking.

• For those who want their money to earn still more money, a high-yield savings account can offer still more earning potential. At the time of publication, some online-only banks were offering rates in the range of 4.5%.

• A CD (or certificate of deposit) can be another way to earn a higher return on money you keep in a bank. However, these don’t offer the accessibility of a checking account. You agree to keep your funds on deposit in return for the bank guaranteeing a certain interest rate.

• For those who want spending power without a checking account, prepaid debit cards can deliver. You load funds onto them and can then spend or pay bills with them. They are typically backed by a major network, like Visa or Mastercard.

• One other option is to use digital payment services, such as Venmo and PayPal. These can allow you to move funds to shop and otherwise spend, without a bank account.

Checking Account Features To Consider

If you are looking for a checking account, you may want to focus on these three considerations:

ATM Access and Fees

Since accessibility is a key selling point of checking accounts, you likely want your money to be within easy and affordable reach. Check out a financial institution’s network of ATMs and make sure they are near your usual haunts. Also see what the charges are for using an out-of-network bank: Certain banks (especially online-only ones) may waive those usual out-of-network fees that can ding you for an average of $4.73 a pop as of 2023.

Online/Mobile Banking

Today, it’s par for the course for financial institutions to provide online banking features, but some provide more robust, user-friendly digital services and offer them for free. As you consider your options, you might look for a bank that helps you save automatically. A round-up function that nudges purchases up to the next whole dollar amount and adds the extra money to your savings can be valuable.

Also helpful are dashboards that allow you to see your money (earnings, spending, and savings) and credit score at a glance, for no extra charge. This feature can help you budget better.

Overdraft Protection

As mentioned above, many people have those “oops” moments and overdraw their accounts. Some banks will give you free overdraft protection up to a certain sum. For instance, they might cover up to $50 of your overdraft without charging you the standard fees. This can be a valuable feature when you are deciding which financial partner is right for you.

The Takeaway

For many people, a checking account can be a reliable hub for their personal finance needs. You can store your earnings securely and still easily access your money to pay bills and fund daily purchases. However, there can be fees involved, and these accounts typically earn little or no interest. So, when shopping around for a checking account, it can be wise to look for one that offers a minimum of surcharges and a competitive interest rate.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 4.00% APY on SoFi Checking and Savings.

FAQ

Are checking accounts free?

Some are. You can often find free checking accounts from traditional and online-only banks as well as credit unions. While these accounts may be billed as “free,” keep in mind that some fees may apply, say, if you overdraft your account.

What happens if my checking is overdrawn?

If your checking account is overdrawn, that means you have drawn more money than you have in your account. By linking a checking and savings account, you may be able to have funds automatically transferred from savings into checking to cover the shortfall. Your bank may charge you a fee, whether they cover the shortfall through overdraft protection or not.

Can I have multiple checking accounts?

There is usually no limit on how many checking accounts you can have. It can be convenient to have one for, say, your salary and your living expenses and another for a side hustle and related expenses.

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SoFi members with direct deposit activity can earn 4.00% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.

As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.00% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.00% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 12/3/24. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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May

2024

What Is a Billing Cycle for a Credit Card?

What Is a Credit Card Billing Cycle?

By Bob Haegele | Credit, Family Finances, money | Comments Off

You can count on your credit bill arriving every month, thanks to your billing cycle, or the length of time between one statement’s closing date and the next. But how does a billing cycle for a credit card work and does it impact your credit score? Many of us aren’t exactly sure, even if we regularly swipe and tap our cards in daily life.

Understanding the ins and outs of a credit card billing cycle can help you manage your money, make sure you have enough set aside to pay your bills, and avoid unnecessary fees.

Definition of a Billing Cycle

A billing cycle on a credit card is the length of time from one billing statement closing date to the next. The exact number of days in a billing cycle may vary, but they usually last from 28 to 31 days.

Credit cards usually have monthly billing cycles and require cardholders to make payments every month. Billing periods must end on the same day of every month, such as on the last calendar day.

The Consumer Financial Protection Bureau states that each billing cycle should be equal. “Equal” in this case means each billing period must not vary more than four days from its usual length. So your credit card bill has a rhythm to it; you can depend upon it being ready at pretty much the same time (give or take a few days) every month. That way you can plan ahead to have enough money in your checking account to cover it.

How Does a Credit Card Billing Cycle Work?

Credit card billing cycles coincide with a certain day of the month. During each billing cycle, new transactions are added to your billing statement. Your swipes, taps, online purchases, and credits are all being tracked and compiled.

Then, at the end of the billing cycle, the card issuer will send you a credit card statement, either electronically or by mail. Whether you receive a paper or electronic statement depends upon whether you opt into paperless billing. It’s important to note the due date and make a payment of at least the minimum amount due by that date to avoid incurring late fees on top of those typically high credit card interest rates.

Fortunately, credit card billing cycles often come with a grace period, which is a time between the end of the billing period and the due date. You won’t be charged interest during this time. By law, credit card companies must deliver your statement to you at least 21 days before the payment due date.

If your credit card is paid in full between the time you receive your statement and the due date, no interest will be charged. However, if there is still a remaining balance after the due date, interest may start to accrue.

How Long Is a Billing Cycle?

The length of a credit card billing cycle can vary, but the length is usually between 28 and 31 days, just like the months of the year.

Credit card billing cycles must be as close to the same length as possible from one month to the next. But they can vary by up to four days to take into account things like weekends, holidays, and months that are different lengths.

Check your statement to find out the exact length of each billing cycle. The first page of the statement usually shows such information as opening and closing date. All of the transactions on the statement fall within that date range.

Can I Change My Billing Cycle?

Your card issuer probably won’t allow you to change some things related to your billing cycle, such as the billing period length. However, one of the things you may be able to change is the date when your credit card payment is due. You may find that helpful because a different due date might suit your situation better.

For instance, you might be able to sync up your payment due date to fall after you get paid, so you know there’s money in your bank account.

Keep in mind that not all card issuers will be flexible with this, and many will only allow you to change your due date within a certain time frame. And if you do request a due date change, it may take one to two billing cycles to take effect. Hence, you should monitor your statement to watch for the change.

Also, note that your card issuer has the right to change the terms and conditions of your credit card agreement at any time. However, if they do so, they generally must notify you 45 days in advance.

How Does A Billing Cycle Affect Your Credit Score?

Your credit card billing cycle can impact your credit score if you aren’t able to pay at least the minimum due on time. Most credit card issuers send monthly updates to credit reporting bureaus about your credit usage. The three main credit reporting bureaus are Experian, TransUnion, and Equifax. These updates usually coincide with your billing cycle date.

On your billing cycle date, reporting bureaus may receive information about your credit usage, including any instances of late payments on your credit cards. Late payments can have a negative impact on your credit score, so be sure you are aware of the due date on your statement at the end of your billing cycle.

It’s also important to be aware that paying your bills on time, all the time, can be one potential way to help build your credit.

Why Understanding Your Billing Cycle Is Important

Understanding your billing cycle and how it works is key to your financial health. Here’s why:

• Your billing cycle lets you know when your next payment is due and the minimum amount due. Paying the minimum can help you avoid penalties and possible hits to your credit score. Paying the full amount due will avoid accruing interest.

• Understanding your billing cycle may help you budget more effectively. Because you know when you have to pay your credit card bill, you can set money aside to make your payments on time. You can request your due date be moved a bit to better suit your cash flow, if needed.

• It will help you monitor your credit card balance more efficiently. That purchase you made today might not appear on the last statement issued, but it will appear on the next one. You may use your cycle’s timing to schedule purchases for the optimal time in terms of keeping your balance due in check.

The Takeaway

Your credit card billing cycle is the period of time between one billing statement’s closing date to the next. This period usually lasts between 28 and 31 days and should be as close as possible to the same length every month. Be sure to pay at least the minimum by the due date to avoid penalties and fees as well as possibly hurting your credit score.

You can request that your due date be moved, if that would help you better manage your budget, and you will likely have a few days’ grace period in which to pay your bill without getting hit with additional charges. Given how high credit card interest rates can be, knowing and following your billing cycle is an important part of being financially responsible.

Another way to help reach your financial goals is to make sure you have enough money in savings. And choosing the right savings vehicle can potentially help your money grow. You may want to explore such options as a high-yield savings account, for instance. Paying your bills and saving for the future are important tools for securing your financial future.

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 4.00% APY on SoFi Checking and Savings.

FAQ

Why is a billing cycle important?

A billing cycle is important because it keeps you informed of your credit card activity for the month. Plus, your payment is due at the end of each cycle (after the grace period), and you want to respect that to avoid accruing additional interest and fees.

How long is a billing cycle for a debit card?

Your checking account or debit card may issue regular statements, and the billing cycle length is approximately 30 days. In other words, the length is similar to your credit card billing cycle, but with a debit card, the funds are automatically deducted from your bank account. You don’t get a bill to pay.

What is two-cycle billing?

Two-cycle billing or double-cycle billing is a credit interest calculation. The interest is applied to the average of the prior two months’ outstanding balance. However, the practice was outlawed with the passing of the Credit CARD Act of 2009.

Photo credit: iStock/RichVintage

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2024 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

4.00% APY
SoFi members with direct deposit activity can earn 4.00% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.

As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.00% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.00% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 12/3/24. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

SOBK-Q224-1902310-V1

May

2024

What ‘Do Not Convert to ACH’ Means on a Check

By Sarah Li Cain | Financial Independence, money, Terminology | Comments Off

Checks seem a pretty mundane bit of banking, but when they say “Do not convert to ACH,” that means the payer doesn’t want the funds transferred electronically. Rather, they are requesting manual processing.

Here, learn more about the implications of these five little words on a check.

ACH System 101

First, understand what ACH is. It stands for Automated Clearing House, which is an electronic system that transfers funds throughout the United States. This network allows individuals and businesses to move money from one financial institution to another, quickly and securely.

Every time you set up automatic bill pay or receive your paycheck by direct deposit or write an eCheck, that’s ACH at work. Apps such as PayPal and Venmo also use the ACH network to send and receive money.

💡 Quick Tip: Did you know online banking can help you get paid sooner? Feel the magic of payday up to two days earlier when you set up direct deposit with SoFi.

How Does ACH Work?

ACH transfers are initiated by either making a withdrawal or deposit into an account. You can send money to another account on a one-time basis — such as through an ACH debit to a utilities company or transferring money to a friend for your share of a restaurant meal — or opt into recurring payments. For example, some companies allow you to make automatic payments, such as for subscription services. In either case, you give permission for the receiver to initiate a withdrawal from your account.

You can also get money via an ACH credit. This happens when people receive a direct deposit of their paycheck or Social Security.

Once you or someone else initiates a transfer, the request will be processed first by your financial institution, usually by the next business day. You may be able to expedite the request, as well as schedule a transfer for a future date.

Typically, ACH transfers are faster than other types of transactions, though a potential downside is that it’s only available for transfers within the U.S. (That’s one of the distinctions between an ACH vs. wire transfer, incidentally; the latter has global reach.)

What Is Check Conversion?

Check conversion refers to the process of transforming a check payment into an electronic payment. This usually happens at one of these three points:

• Point of Purchase (POP), meaning when a purchase is made, say, at a store

• Accounts Receivable Conversion (ARC), when a business receives a check by mail and then processes it electronically

• Back Office Conversion (BOC), or when a check is processed electronically after acceptance at, say, the office of a retail location

What Does Conversion to ACH Mean?

ACH conversion describes the fact that a paper check will be converted to a payment that’s processed through the ACH network. In other words, even though a paper check was written and used as payment, it will become an electronic ACH transfer.

Recommended: How to Cash a Check with No Fees

Why Might a Check Be Converted to ACH?

The main reason why a check may be converted is to save time and money when processing payments. Plus, converting a check payment to ACH could be more efficient, as it can help financial institutions detect potential bank fraud earlier, make fewer mistakes, and even result in fewer returned payments. The service of ACH transfers is typically free to consumers.

Can a Check Be Converted to ACH?

A check can be converted to ACH in many cases (unless it says “do not convert to ACH”) to help it move swiftly and securely; there’s no check to get lost or be forged, for instance.

How the conversion usually happens: When the check gets deposited in a checking account, the payment details are captured from the check. Then, the check itself will be stored securely by the financial institution — unless you have the physical check and are making a mobile deposit. If the check is converted in person, then the original check will be voided and given back to the payer.

If the check was converted for ACH, it will typically appear on a bank statement as a direct payment (or withdrawal) in the same section as ATM withdrawals or other forms of electronic payments. It could also appear as a check payment — some banks include a scanned image of the check or include the payment details.

Recommended: How Much are the Average ATM Fees?

What Does It Mean When a Check Says ‘Do Not Convert to ACH’?

When a check says “do not convert to ACH,” it means that the payer does not want to make a payment electronically. Instead, the payment needs to be processed manually from one financial institution to another through the check collection system.

More specifically, it means the financial institution will contact the other financial institution to request the funds, which are then delivered through a local clearinghouse exchange or other form organization like the Federal Reserve Bank.

It’s rare to receive a check that says this on it, but if you do, there’s not much to be done to alter the payer’s request.

What Is the Benefit to the Drawee if a Check Says ‘Do Not Convert to ACH’?

Checks that say “Do not convert to ACH” may sometimes be printed when a payer is issuing multiple checks; for example, if a class action suit is being paid out. In this case, perhaps the check issuer does not want the much faster electronic processing of their checks. Perhaps it suits them to have a slower payment process.

What Is the Difference Between ACH and a Check?

The difference between ACH and check payments is the network by which they’re processed. ACH payments are processed electronically through the ACH network, whereas non-converted paper checks are processed manually. In many cases, ACH transfers are processed faster than paper checks, since you may have to wait for a check to clear.

The Takeaway

When it comes to getting paid, converting a check to ACH is most likely the fastest, safest way. Unfortunately, there’s not much you can do if the check you receive says “Do not convert to ACH,” however rare they may be. You’ll probably need to deposit it and allow the extra time required for it to become available cash.

Most of us love the conveniences of banking today, and if you want to make a good thing even better, why not check out your options?

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 4.00% APY on SoFi Checking and Savings.

FAQ

Can an ACH payment be declined?

Yes, an ACH payment may be declined or rejected for a few reasons, the most common one being that the payer doesn’t have enough funds in their account for the transfer. Other reasons include the account was closed by the time the transfer took place, the funds have been frozen, or the payer has stopped the payment request.

What does “ineligible for conversion” mean on a check?

If a check says “ineligible for conversion,” it means the check can’t be converted to an ACH payment. This may be due to the paper the check was printed on. The payee needs to either cash or deposit the actual check at a local branch.

Why would a bank reject a check?

There are several reasons a bank would reject a check, including:

• You don’t have an account at the bank where you want to cash the check

• You don’t have proper identification to show to the bank

• The amount may be too large for the financial institution to process

• The check is void (for example, the check is old and the payment is no longer valid)

• The signature on the check doesn’t match what the bank has on file

Photo credit: iStock/fizkes

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2024 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

SoFi members with direct deposit activity can earn 4.00% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.

As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.00% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.00% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 12/3/24. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

SOBK-Q224-1902266-V1

May

2024

All You Need to Know About Variable-Rate Certificates of Deposit (CD)

By Laurel Tincher | Budgeting & Goals, Growing Wealth, Investing, money | Comments Off

A variable-rate certificate of deposit (CD) is a financial product that locks up your money for a set period of time (or term) and has a fluctuating interest rate. This varying rate of return is what sets it apart from traditional CDs, which pay a fixed rate, meaning you know exactly how much money your money will earn.

When interest rates are high, a variable-rate CD can help pump up your returns, but the opposite holds true, too. Depending on your financial goals, style, and comfort level, a variable-rate CD may or may not be a good option for you.

What Is a Variable-Rate Certificate of Deposit?

A variable-rate certificate of deposit, or CD, is a financial product that you can purchase from a banking institution, broker, or credit union. All types of CDs are a savings account that have fixed investing terms. That means they hold your money for a certain amount of time, be it six months or several years.

You pick a term that suits you best. During that time, your money earns interest, but you are not supposed to withdraw any funds early or you are likely to be assessed a penalty fee. (No-penalty CDs are sometimes available but usually with lower interest rates.) When the term ends, your CD is said to have matured, and you may withdraw the funds plus interest or roll them over into a new CD. Usually the total amount of interest is also received at the end of the investment term.

More specifically:

• Traditional CDs pay a consistent rate of interest that you are informed of at the start of the term.

• With variable-rate CDs, however, the interest rate fluctuates throughout the term.

This means, you, the investor can potentially earn more on your deposit when interest rates go up. Or you could earn less if interest rates go down. Several market factors influence interest rates. These include the prime rate, treasury bills, a market index, and the consumer price index (CPI).

One last note: CDs are insured. Certificates of deposit are time deposits protected by the Federal Deposit Insurance Corporation (FDIC). If the bank holding the CD were to fail, you’d be insured up to $250,000 per depositor, per account ownership category (such as single, joint, or a trust account), per insured institution.

Special Considerations of a Variable-Rate CD

Here are a few key things to consider when looking into investing in variable-rate CDs. This type of CD is generally most profitable if purchased when interest rates are low, because it’s more likely that the interest rate will increase during the investment term. For this reason, there is a higher demand for these CDs when interest rates are low.

There are four main factors that influence interest rates. These are:

• Consumer Price Index (CPI): The federal government uses the Consumer Price Index to calculate changes in the amount that consumers pay for certain products and services. Whatever the current CPI is can affect how interest rates fluctuate.

• Market Index Levels: Another factor that affects interest rates is the performance of investment portfolios, such as major market indices. Some indices that are often analyzed include the S&P 500, the Dow Jones Industrial Average, and the Nasdaq Composite Index.

• Prime Rate: The prime rate is the interest rate that banks charge customers who have the highest credit ratings. These customers are the least likely to default on loans, so they get the best interest rates.

• Treasury Bill Yields: The U.S. Treasury sells Treasury bonds in order to raise money, and they also pay interest on those bonds. The interest rate associated with Treasury bonds depends on the amount and time period of the bond.

It’s worth noting that, during times of high inflation, CDs may not be your best option. If inflation surges, even a variable-rate CD may not be able to keep pace. At the end of your term, you may find that your investment has lost ground versus inflation.

Another factor to consider before you lock in on a variable-rate CD is the fee for early withdrawals. Some variable-rate CDs have higher fees than others. If there’s a good chance you may end up withdrawing funds early, before a CD’s maturity date, you should check those penalties and make sure they aren’t too steep.

💡 Quick Tip: Want to save more, spend smarter? Let your bank manage the basics. It’s surprisingly easy, and secure, when you open an online bank account.

Pros of a Variable-Rate CD

All CDs are known to be very safe investments since they are federally insured up to $250,000, as noted above. In addition to that security, there are several benefits to investing in variable-rate CDs.

High Yield on Investments

Variable-rate CDs are secure, insured accounts that can provide a higher rate of return than other types of savings accounts. For instance, when you buy a fixed-rate CD, you might miss out on the opportunity to earn a higher interest rate if the market ticks upward. Variable-rate CDs, however, can respond to market conditions. If you buy a variable-rate CD when interest rates are low, you can potentially earn more as rates increase.

Profitable When Interest Rates Are Low

When interest rates are low, demand for variable-rate CDs increases, as does the profit potential. That’s because it is more likely that interest rates will increase after you purchase one. The interest rate can tick upwards and earn you more money on your money.

Lower Withdrawal Fee

Generally, variable-rate CDs come with lower penalties on early withdrawals than other types of CDs.

Recommended: How Can I Buy a Bond?

Cons of a Variable-Rate CD

While there are several reasons variable-rate CDs make good investments, they do come with a few downsides to consider before you invest.

Low Interest Rates

Although a variable-rate CD provides the opportunity to snag higher interest rates, it also creates a significant risk of earning a lower rate if market rates go down. If you buy a variable-rate CD when interest rates are low with the hopes that they will increase, there is no guarantee that this will happen. This means they will continue to earn a low interest rate for some or all of the duration of the CD term. In this case, you may have lost out on the possibility of earning a higher return elsewhere.

Paying Extra for “Bump-Up” Feature

Although interest rates can increase or decrease with most variable-rate CDs, there are some that have a “bump-up” feature. This allows for a one-time rate boost (or possibly a few rate hikes) during the CD’s term, but you may well have to pay extra for this “bump-up.” This is because the initial interest rate is typically lower than it would be on a fixed-rate CD.

Inflation Can Outpace Your Rate and Wipe Away Profit

There is a chance that inflation will increase during the term of a variable-rate CD, as noted above. If this happens, inflation could end up being higher than the interest rate you’re earning. That could effectively cancel out your earnings.

Variable-Rate CD: Real World Example

All this talk of varying interest rates can be hard to get a handle on without a concrete example. So consider the following:

• A CD that has a three-year term and a guaranteed repayment of the principal deposit.

• The starting rate is 4.00%.

• During the term of the investment, the rate drops from 4.00% down to 2.00%.

• To determine the amount of interest you’d receive, you’d take the difference between the initial rate and the final rate, which is 2.00%.

• So at the end of the term, the investor would receive their initial deposit plus 2.00% interest. That’s half what it was when you started.

Obviously, you, the CD account owner, would be happier if the reverse were true, which it could be!

What Happens if I Redeem a CD Before It Matures?

Most CDs have fees for early withdrawal; these typically involve losing interest that’s been earned and occasionally a bit of the principal. (Generally speaking, you don’t receive earned interest until a CD matures.)

However, some variable-rate CDs do offer early withdrawals with no penalties for fees. These CDs usually have a lower interest rate, so you are paying for this flexibility.

Recommended: How Can I Invest in CDs?

The Takeaway

CDs provide a safe place for your money to grow for a specific period of time. Most of them have fixed interest rates, but variable-rate ones are also often available. These can come with some risks. Time things right, and you could earn a healthy return on your investment. But if rates don’t head in a positive direction, you may not even be able to keep up with inflation.

CDs aren’t the only game in town for earning interest. Also consider the kind of interest you can earn from checking and savings accounts.

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 4.00% APY on SoFi Checking and Savings.

FAQ

Are variable-rate CDs issued by the government?

Variable-rate CDs are not issued by the government, but the FDIC, an independent agency of the federal government, insures them up to $250,000 per depositor, per account ownership category, per insured institution.

What determines the rate on a variable-rate CD?

Several factors can affect the interest rate of variable-rate CDs. These include the prime rate, market indices, treasury bills, and the consumer price index.

Do CDs have fixed interest rates?

Many CDs have fixed interest rates, but variable-rate CDs have interest rates that fluctuate throughout their term. It’s up to you which type you invest in.

Photo credit: iStock/Vladimir Sukhachev

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2024 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

SoFi members with direct deposit activity can earn 4.00% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.

As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.00% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.00% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 12/3/24. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

SOBK-Q224-1902288-V1

Bull vs Bear Market: What’s the Difference?

What Is a Bull Market?

What Is a Bear Market?

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Access stock trading, options, alternative investments, IRAs, and more. Get started in just a few minutes.

Bull vs Bear: Main Differences

How Is Investing Different During a Bull Market vs a Bear Market?

Investing During a Bull Market

Investing During a Bear Market

Examples of Bull and Bear Markets

The Takeaway

Checking Account Pros and Cons

What Is a Checking Account?

Get up to $300 when you bank with SoFi.

Pros of Checking Accounts

Security

Easy Access to Cash

Pay Bills Conveniently

Debit Card for Purchases

Rewards

Cons of Checking Accounts

Low or No Interest Earned

Potential Overdraft and Other Fees

Security Risks

When a Checking Account Makes Sense

When Other Accounts May Be Better

Checking Account Features To Consider

ATM Access and Fees

Online/Mobile Banking

Overdraft Protection

The Takeaway

FAQ

Are checking accounts free?

What happens if my checking is overdrawn?

Can I have multiple checking accounts?

What Is a Credit Card Billing Cycle?

Definition of a Billing Cycle

How Does a Credit Card Billing Cycle Work?

How Long Is a Billing Cycle?

Can I Change My Billing Cycle?

How Does A Billing Cycle Affect Your Credit Score?

Why Understanding Your Billing Cycle Is Important

The Takeaway

FAQ

Why is a billing cycle important?

How long is a billing cycle for a debit card?

What is two-cycle billing?

What ‘Do Not Convert to ACH’ Means on a Check

ACH System 101

How Does ACH Work?

What Is Check Conversion?

What Does Conversion to ACH Mean?

Why Might a Check Be Converted to ACH?

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Can a Check Be Converted to ACH?

What Does It Mean When a Check Says ‘Do Not Convert to ACH’?

What Is the Benefit to the Drawee if a Check Says ‘Do Not Convert to ACH’?

What Is the Difference Between ACH and a Check?

The Takeaway

FAQ

Can an ACH payment be declined?

What does “ineligible for conversion” mean on a check?

Why would a bank reject a check?

All You Need to Know About Variable-Rate Certificates of Deposit (CD)

What Is a Variable-Rate Certificate of Deposit?

Get up to $300 when you bank with SoFi.

Special Considerations of a Variable-Rate CD

Pros of a Variable-Rate CD

High Yield on Investments

Profitable When Interest Rates Are Low

Lower Withdrawal Fee

Cons of a Variable-Rate CD

Low Interest Rates

Paying Extra for “Bump-Up” Feature

Inflation Can Outpace Your Rate and Wipe Away Profit

Variable-Rate CD: Real World Example

What Happens if I Redeem a CD Before It Matures?

The Takeaway

FAQ

Are variable-rate CDs issued by the government?

Student Loan
Refinancing

Personal
Loans

Online
Investments